Chicago Mercantile Exchange (CME) open interest in bitcoin (BTC) futures hit a new all-time high of $ 841 million today.
While this cannot be independently viewed as bullish, This shows that professional investors’ interest in Bitcoin continues to grow immensely.
Open interest in CME Bitcoin futures in USD. Source: Skew
The futures premium provides more useful data
The best way to gauge the sentiment of inventors in futures contracts is by measuring its premium against the market price of Bitcoin on spot exchanges. Usually, The indicator should show a premium of 0.5% to 1% for CME 1 month futures contracts.
By postponing the financial settlement date It is natural for sellers to be forced to contribute more money.
On the other hand, An excessive premium creates an arbitrage opportunity. how You can sell the futures contract and buy the same amount in the spot markets at the same time. This is a market neutral strategy commonly known as “Cash on pickup”.
Base or premium of the CME Bitcoin futures. Source: TradingView
The top diagram shows how the foundation consistently stood on favorable ground since mid-March and refficiently held values above the premium of 1% for ten consecutive days.
A positive base indicates Contango, which means, that Sellers charge more money to postpone the sale.
This situation, known as Contango, It is the main indicator of a healthy and bullish derivatives market. This is especially true when the open interest increases, as sWe create new positions under ideal circumstances.
CME’s bitcoin options markets are growing
CME’s bitcoin options markets are relatively new and were launched in January 2020. It certainly looks humble compared to the leading exchange Deribit, although CME has reached Impressive open interest of $ 440 million at the end of June.
Open interest in bitcoin options. Source: Skew
The current open interest in CME options is $ 171 million carries a trend that has been constant since its inception, as it is very focused on purchase options.
This means investors can benefit from the right to buy CME Bitcoin futures at a fixed price, also known as a strike.
CME options contracts They expire on the last Friday of each month. This leads to a sharp decrease in open interest in the graph.
The way things are now 66% of CME’s open positions mature on August 28th. while The other 14% expire at the end of September.
CME options also show optimism
Call options are often associated with bullish strategies. However, They are also used to buy “covers”. they are pretty neutral and aim to generate a steady income assuming the underlying asset stay above a certain threshold.
The best way to spot the call options used for market neutral strategies monitored to check that the percentage of open positions is well below current levels From the market.
Recognizing this difference is critical to properly assessing whether call options are primarily used for bullish or neutral positions.
Open interest in CME Bitcoin options at a fixed price. Source: CME
Each CME option contract is equivalent to 5 BTC and the most relevant prices for the terms of August and September are given in the table above.
The first thing to keep in mind is the lack of volumes below the $ 10,000 level. Of Current open positions of $ 171 million of CME options, 80% are call options, which is another bullish indicator.
Taking into account the most important fixed price levels of the August and September contracts It can be concluded that these options are mainly used in bullish strategies.
The broader options markets are bullish
Determine if this positive attitude is maintained in the broader options markets, The total open positions per price should be checked by adding each derivatives exchange.
Regardless of whether you focus more on call or put options, Significant open interest in below market prices is neutral or bearish.
Add open interest from Bitcoin options. Source: Skew
There is currently 44,700 BTC with open positions under $ 10,000. for a total of USD 514 million. This digit corresponds to only 28% current aggregated open interest of USD 1.84 billion and signals optimism in the options markets and confirms CME’s call options analysis.
Look at the present, not the past
By monitoring the derivatives markets One can gauge the sentiment of professional traders and better assess today’s failure to break the $ 12,000 resistance and subsequent test of the $ 11,150 level.
Both futures and options indicators signal optimism and therefore, should be more relevant than the charts and trading data for the markets in August 2019.
Back then, Bitcoin (BTC) tested $ 12,000 for a week before falling 20% over the next five days.
Bitcoin (USD) in August 2019. Source: TradingView
Will history repeat itself this time? That’s an excellent question. and a legitimate fear for seasoned Bitcoin investors who know how volatile the digital asset is.
Fortunately, there are no compelling signs of a downward trend for the bulls from the BTC derivatives market perspective.
The views and opinions expressed here are solely those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trade movement is associated with risks. You will need to do your own research in making your decision.